Individual or component costs of capital - Compute the costs of the following:

• 1. A bond that has $1,000 par value and a contract or coupon interest rate of 9 percent. A new issue would have flotation cost of 5 percent of the $1,100 market value. The bonds mature in 10 years. The firms average tax rate is 30 percent, and its marginal tax rate is 34 percent.
• 2. A new common stock issue that paid a $1.80 dividend last year. The par value of the stock is 15, and earnings per share have grown at a rate of 7 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earning ration of 30 percent. The price of the stock is now $27.50, but 5 percent flotation cost (as a percent of market price) are anticipated.
• 3. Internal common equity where the current market price of the common stock is $43. The expected dividend this coming year should be $3.50, increasing thereafter at a 7% annual growth rate. The corporations tax rate is 34%.
• 4. A preferred stock paying a 9% dividend on a $150 par value. If a new issue is offered, flotation costs will be 12% of the current price of $175.
• 5. A bond is selling to yield 12 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 34 percent. In other words, 12 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest).
• 6. The preferred stock of Texas Southern Power company sells for $51 and pays $4.25 in dividends. The net price of the security after issuance costs is $48.00. What is the cost of capital for the preferred stock?